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Article
Land Allocation in the Presence of Estimation Risk
Journal of Agricultural and Resource Economics
  • Sergio H. Lence, Iowa State University
  • Dermot J. Hayes, Iowa State University
Document Type
Article
Publication Date
7-1-1995
Abstract

Estimation risk occurs when parameters relevant for decision making are uncertain. Bayes' criterion is consistent with expected-utility maximization in the presence of estimation risk. This article examines optimal (Bayes') land allocations and land allocations obtained using the traditional plug-in approach and two alternative decision rules. Bayes' allocations are much better economically than the other allocations when there are few sample observations relative to activities. Calculation of certainty equivalent returns (CERs) with estimation risk is also discussed and illustrated. CERs are typically (and incorrectly) calculated with the plug-in approach. Plug-in CERs may be extremely misleading.

Comments

This article is from Journal of Agricultural and Resource Economics 20, no. 1 (1995) 49–63.

Copyright Owner
Western Agricultural Economics Association
Language
en
Date Available
April 1, 2013
File Format
application/pdf
Citation Information
Sergio H. Lence and Dermot J. Hayes. "Land Allocation in the Presence of Estimation Risk" Journal of Agricultural and Resource Economics Vol. 20 Iss. 1 (1995) p. 49 - 62
Available at: http://works.bepress.com/dermot_hayes/14/